Personal Investment & Financial Planning Q`s/Brokerage Accounts - Regular vs. Roth



I am 57 years old and have had 401(k) accounts, IRA accounts and Roth IRA accounts for many years.  I also have a brokerage account with nine stocks (which I plan to hold for a long term.)

It has been suggested that since I tend to "buy and hold" stocks, I should consider transferring some of the funds in my Roth IRA to purchase my stock choices in a Roth brokerage account rather than making additional purchases in the regular brokerage account, so that when I choose to sell them (hopefully at a profit) the proceeds will be tax free.

What are the advantages and disadvantages of opening and making future stock purchases in a Roth brokerage account?


ANSWER: Hi. To clarify, you can't necssarily transfer funds to your Roth IRA. If you are eligible to contribute each year then you can add in this manner or you can always convert IRA assets to Roth assets and pay the tax on the conversion. Whether or not this makese sense is dependent on your specific tax situation.  In regards to the strategy of owning stocks in a Roth IRA, I would agree this makese sense. Since the Roth grows tax deferred and is tax free at withdrawal during retirement you typically want this type of account to grow the most. I hope this helps.

---------- FOLLOW-UP ----------

QUESTION: Thanks for your response.  I wasn't asking about transferring funds to my Roth IRA, I was asking about using funds already in my Roth IRA to buy specific stocks in a Roth brokerage account rather than buying specific stocks in a regular brokerage account with non-IRA funds.  Are there any disadvantages to doing this?

Hi. Sorry for the confusion, your prior email mentioned "transfer some of the funds in my Roth to purchase stocks". To answer your question, there are no disadvantages in my opinion in purchasing stocks in your Roth. Since Roth IRAs get drawn out tax free you might as well try to grow this balance as much as you can. The only general "disadvantage" is that if you have losses in stocks you can't use them to offset other gains as you would be able to in a non IRA account and upon death Roth IRAs do not get a step up in cost basis like personal investments do, however, since Roth IRAs aren't taxed this does not pose an issue like it does in a regular IRA. I hope this helps.  

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John D Smith, CFP


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